During development, cell fates are established by signals that emanate from specialized "organizer" regions. How these signals direct cells to differentiate migrate, and alter their shape during development is a fundamental yet poorly understood question. The analysis of Hedgehog (Hh) and Wingless (Wg) signaling in Drosophila embryonic epidermis is contributing novel insights into these fundamental developmental problems. Preliminary work identified three conserved genes drumstick (drm), lines, and bowl. Their gene products interact physically to mediate patterning by the epidermal organizer. In imaginal discs, these gene products control epithelial morphogenesis by signals distinct from Hh and Wg. Genetic and biochemical experiments suggest the following model to be tested in Aims 1 and 2: Lines targets Bowl for degradation via the ubiquitin-proteasome pathway;Drm inhibits Lines to shield Bowl from degradation;Drm accomplishes this function by localizing Lines to the cytoplasm. Specific Aim 1 is designed to test how Lines decreases the abundance of Bowl. A combination of genetic, molecular, and pharmacological approaches in cell culture and in vivo will link the activity of Lines to proteasomal, or non-proteasomal pathways. Specific Aim 2 is designed to test whether Drm localizes Lines to the cytoplasm to stabilize Bowl and whether Drm accomplishes this function by decreasing Lines-Bowl interaction. Molecular genetic experiments suggest that Lines blocks epithelial folding in imaginal discs, whereas Drm inhibits Lines, and thereby activates Bowl, to initiate epithelial folding. Specific Aim 3 utilizes a combination of loss- and gain-of-function experiments in mosaic clones to test the model. The proposed experiments will help explain how primary organizing signals direct cells to differentiate and alter their shape during development. Insight from this work may apply to vertebrate development where parallel pathways operate. In addition, the proposed experiments will provide essential insights into the regulation of the ubiquitin-proteasome system (or another proteolytic system) in a developmental setting. Insight from this work may suggest new strategies for reversing diseases that arise from constitutive degradation of key regulatory proteins.